What Bankers Need to Know About the Latest IRS Scams
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As the federal tax filing deadline approaches next month, tax-related scams are heating up.
In one popular scheme, people impersonating IRS agents call taxpayers, claim they owe taxes, and demand immediate payment using a prepaid debit card or a wire transfer. Those who refuse are threatened with arrest, deportation or loss of a business or driver's license. The callers can manipulate caller ID to make it look like they are calling from an IRS phone number; in some cases they know the last four digits of the taxpayer's Social Security number.
"We have seen scams based on unsolicited text messages and aggressive phone calls," said David Pollino, senior vice president and enterprise fraud prevention officer at Bank of the West in a recent interview. "We've seen scams in which people call claiming to be with the IRS, saying, 'We'll arrest you if you don't wire money to us immediately.'"
Although consumers, not banks, are the victims of these schemes, a bank could still be on the hook if a wire transfer on behalf of a customer turns out to be part of a scam.
"Banks have to reimburse consumers because of Reg E," said Avivah Litan, vice president of Gartner. "They don't have to reimburse businesses."
IRS fraud happens every year in March and April. Last year, more than 20,000 taxpayers fell victim to the scam and lost millions.
What's different this year is the volume of such fake calls.
"It's absolutely taking off," said David Dewey, director of research at Pindrop Security, a provider of phone fraud analytics software.
Some of the calls are very sophisticated, and the fraudsters cite the right regulations and government bodies and might mention the local police department or district attorney.
Pindrop runs what it calls the world's largest phone honeypot, a trap set to catch bad behavior from telemarketers, debt collectors and fraudsters. The company monitors 250,000 unlisted phone numbers. "We have automated recordings that do a pretty good job of tricking the callers into believing they are talking to a person," Dewey said. It analyzes the behavior of the callers to those numbers for signs of fraud. (There's no legitimate reason for anyone to dial these numbers.) Typically 100,000 to 110,000 calls a day come in to the honeypot.
"On any given day we see as many as 9% of those phone calls associated with the IRS scam," Dewey said. "That's upwards of 9,000 calls in one day associated with the IRS."
Whitepages, which has four million users of its caller ID and spam blocking mobile apps, has also seen an increase in calls related to IRS fraud. Its customers allow it to look at traffic related to suspicious calls.
"We saw a spike back in 2011, when we first started aggressively tracking it, right around this time when you expect tax season to be," said Jonathan Nelson, product manager and digital reputation manager for Whitepages. "It's been fairly constant up until early 2014, since then it's been on a rise. Right now it averages about 2.5% of all the fraud we see."
Having compared the Federal Trade Commission's complaint records of fake calls to activity in Pindrop's honeypot, Dewey estimates that only 20% of the people getting hit by this scam are reporting it to the FTC.
"They're either going along with it or silently ignoring it," he said.
Who is being targeted? Pindrop's analysis of the geographic coverage of these calls shows an even distribution across the country.
"Based on the dialing patterns we've seen from the fraudsters, they'll try their scam on anyone and everyone they can get on the phone," Dewey said. "Our intuition behind why they're using such a broad blanket technique is that there's a high rate of folks that would believe the IRS is calling, that they are in some kind of trouble."
Some might still owe the IRS money from last year. Others might feel vulnerable because of a related legal issue, such as a shaky immigration status.
What a Bank Can Do
The first step in preventing IRS fraud is educating consumers, although that appears to seldom work. Some consumers report such scams, but they can't be counted on to recognize the signs of fraud.
Banks can ask customers a few questions before executing wire transfers. For instance, the IRS has stated that it will never call to demand immediate payment, call about taxes owed without first having mailed a bill, demand that a consumer pay taxes without giving the opportunity to question or appeal the amount owed, require the use of a specific payment method such as a prepaid debit card, or threaten to bring in local police or other law-enforcement groups to have the consumer arrested for not paying. By questioning customers about why they're sending the money, call center reps could uncover telltale signs of foul play.
Banks can also use fraud analytics to look for correlations between account numbers, for instance, to detect an account being used multiple times for federal tax payments.